SACRAMENTO, Calif. - Although the California Public Employees' Retirement System has been selling off the bulk of its $1.2 billion timber portfolio, it's not giving up on the asset class.
"We plan to maintain our international portfolio and intend to re-invest in the West," said Julie Rost, investment officer for timber at the $131 billion pension plan. CalPERS last fall sold its 226,000-acre western U.S. timber portfolio to the $27.6 billion Massachusetts Pension Reserves Investment Management Board, Boston, for $401 million in a deal initiated by MassPRIM, Ms. Rost said.
"We are working with Campbell Group (LLC, Portland, Ore.), which managed the Western portfolio, selectively looking at timber opportunities, and will rebuild that portfolio," Ms. Rost said. However, it will be smaller, she added.
In the spring, CalPERS also put its Southern and Northeastern U.S. timber portfolio out to bid through its manager, Hancock Timber Resource Group, Boston, to determine interest. That portfolio, valued at $744 million, extends over 855,000 acres in 15 states. "We are pleased with the responses and are currently evaluating them," said Mike McCook, CalPERS' senior investment officer for real estate.
The system's international timber portfolio, managed by UBS Timber Investors, Lebanon, N.H., recently made its first acquisition, paying $48 million for 32,000 acres in Brazil. The system committed a total of $120 million to UBS, and expects to get returns in the mid-teens, Mr. McCook said.
Mr. McCook noted that while it's a great time for other pension funds to be getting into the asset class since prices are low, the situation is different at CalPERS, which began investing in timber in the mid-`80s. "We made 14.7% (annualized) on the western portfolio, since inception, so it was a good time for us to sell," he said. "If we had waited, prices might have weakened further, and we would have realized less."
The timber portfolio is part of CalPERS non-core or specialized real estate portfolio, which stood at $2.6 billion as of Dec. 31, while the core portfolio was at $9.3 billion as of that date. Timber had grown to 40% of the non-core portfolio, which Mr. McCook said was too much. He believes that none of the asset classes within the non-core portfolio should exceed 15%. "We want to put more of the (non-core) portfolio into more opportunistic investments that can generate higher returns," Mr. McCook said.